Thames Water backers table £3bn debt offer in scramble to shore up finances

A group of Thames Water’s bondholders have tabled a £3bn debt offer to the beleaguered firm today as it scrambles to shore up its finances.

In a statement this morning, the group, which represents some 75 per cent of the firm’s class B bondholders, said they had delivered an “executed and legally binding Backstop Agreement” for a debt facility that would provide Thames with a “certain, deliverable, binding and fully committed offer to address its immediate funding needs”. 

“The B Group promised Thames Water it would deliver a fully funded commitment, and it has now done exactly that very rapidly and in full,” they added. 

“The group has been able to ensure the fully underwritten financing commitment in a very short period of time as a result of significant investor appetite, which reflects the desire among many creditors to deliver the best deal for Thames Water.” 

The offer of the new debt facility will aim to top a more costly rival offer from a group of class A creditors, including the US investment firms Elliott and Silverpoint. 

The previous proposal would provide an initial tranche of £1.5bn debt at a cost of 9.75 per cent a year in interest. An extra £1.5bn would then be made available should the regulator Ofwat reject a proposal by the firm to hike bills next year.

A source close to the new offer said it would come at a rate of eight per cent annually and the full £3bn funding would be delivered on day one.

Thames has been searching for ways to shore up its balance sheet and avoid insolvency while negotiating a reprieve from the regulator over its spending plans.

The South Eastern utility firm is among a group of companies calling for a bigger hike in bills next year to raise more cash for investment. Such a plan would see the average bill for customers in England and Wales rise by 40 per cent between now and 2030, to £615 a year.

Thames has been in crisis since March when a group of its shareholders deemed its business plans uninvestable. While the company had backed the initial financing offer from the class A holders, the emergence of a rival offer will put pressure on the company to reconsider.

“With this substantial commitment in hand, Thames Water should be allowed to choose the most affordable funding available to it, in order to deliver its investment plans and place it on a long-term recovery path,” the group said in the statement this morning.

“The B Group calls upon all of the company’s other creditors to support this committed financing on that basis – rather than needlessly paying lenders interest on expensive debt with money that could be spent investing in the water and wastewater supplies of London and the Thames Valley.”

The Class B debtholders are said to belive that Thames Water could save hundreds of millions of pounds in interest payments and fees over the next year if the firm backs their proposal, Sky News reported.

The US private equity firm KKR is also interested in an equity raising process being run by bankers at Rothschild, the outlet reported last week.